Here are 3 “Bewares” that you absolutely must know when choosing a franchise. You don’t read or see much about this topic but I encounter these companies on a regular basis and I warn our clients before we become too fully engaged in the process. So here are the top contenders for choosing the worst franchise companies.
Beware #1: The franchisor does not have a clear vision of their opportunity. In some newer or under-capitalized brands, the franchisor cannot clearly articulate the following: “What is their total investment? / What consists of their marketing plan? / Do you publish earnings claims and how did you arrive at those numbers? / Do you up-charge me for my equipment, supplies and software tools? / Do you offer funding?” When the franchisor does not give clear, definitive answers and dodges those questions, you want to pay close attention to those signs, as they often reveal that they are not confident in their brand. I personally like the franchisor to have a PowerPoint presentation addressing all those items very early in the process.
Beware #2: The franchisor does not offer and avoid meeting you in person for Discovery Day. You should each have a chance to evaluate and see if you are a good fit for one another, and the best way is to meet at the franchisor’s headquarters. I have had some franchisor’s want to meet the candidate through Skype but I personally believe that you are better off meeting the CEO, and their staff, so that you can size up one another and determine if you are a good fit.
Beware #3: The franchisor has failed to perform what they promised in their discussions. Because franchising is a heavily regulated industry, the laws are designed to protect franchise candidates.
However, in the courting phase, often the candidate will discuss items that are most important to them and they don’t get these concessions in writing. When they are ready to sign the agreement, the candidate is upset because the franchisor may charge extra fees for their concessions. We once had a candidate who was ready to sign the agreement and wanted a larger territory. The franchisor agreed to one fee but when the agreement was presented to the client, the price was much higher.
Additionally, I have seen, with some of the poorer run franchise companies, that they make promises on their marketing and advertising programs, only to find out that they did not deliver what they promised. Keep your eyes wide open in the courting process and use experts, such as an experienced Franchise Consultant, Franchise Attorney and a CPA.
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